Do I have to extend my lease to remortgage?

Paula Higgins, chief executive at Homeowners Alliance, answers a question on leasehold

If you are a leaseholder you’ll already know that the shorter your lease the more problematic it becomes.

A shorter lease is more expensive to extend, for example, while if you’re selling your leasehold property you will struggle to get interested buyers if your lease is on the short side because mortgage lenders are reluctant to lend on shorter leases.

When it comes to remortgaging your leasehold property, a short lease can cause similar headaches.

As a lease runs down on a property, its value will drop. This is because a shorter lease means ownership is moving closer to reverting to the freeholder. From a mortgage lender’s point of view that could affect its security, both in terms of the property’s open market value and the ability to sell the property.

What is regarded as a short lease?

As a result, lenders will have requirements about what length of remaining term on the lease is acceptable. Although different lenders will have a different approach, anything that is getting below 75-85 years could start to cause a problem.

To give you an idea of the stance some lenders take, Leeds Building Society requires at least 85 years remaining at application, Halifax requires a minimum of 70 years on the lease at application and Nationwide Building Society requires a minimum of 55 years at application and a minimum of 30 years at the end of the mortgage term.

Santander insists on a minimum of 55 years with 30 years remaining at the end of the mortgage term.  However, it does also point out that the valuation must be acceptable and that in some cases anything under 85 years could be unacceptable.

Other leasehold issues

Other issues on a lease that can affect a mortgage application would be any onerous clauses in the leasehold contract and, of course, lenders and valuers can also take a tough stance on excessive ground rents.

In short, while you probably won’t have to extend your lease before remortgaging (unless it has fallen ridiculously low – which should never happen as you should always extend before it gets near the 85-year mark) but the shorter your lease is the more you limit your mortgage options.

To make sure you can access the best mortgage deal out there, speak to a mortgage broker first though to see what would be available on your current lease.

Before extending your lease you can speak to a specialist leasehold extension solicitor for a free estimate of what it is likely to cost.